Cryptocurrency and Digital Assets Flashcards

What is a 'flash loan' in DeFi?

Answer: An uncollateralized loan that must be borrowed and repaid within the same blockchain transaction

Flash loans exploit atomic transaction properties to provide uncollateralized funds that must be returned within the same transaction block, or the entire operation reverts.

What is 'tokenomics' and why is it important when evaluating a cryptocurrency project?

Answer: The economic design of a token including supply, distribution, incentives, and utility that drives its long-term value

Tokenomics encompasses supply schedules, distribution allocations, incentive mechanisms, and token utility — factors that fundamentally determine a project's economic sustainability and value accrual.

Which type of blockchain attack involves an attacker gaining majority control of network hash rate?

Answer: 51% attack

A 51% attack occurs when a single entity controls the majority of a PoW network's hash rate, enabling transaction reversal and double-spending but not theft of funds from other wallets.

What is a 'DAO treasury' in the context of decentralized organizations?

Answer: A pool of funds collectively owned and managed by token holders through governance votes

A DAO treasury is an on-chain pool of assets governed by token holder proposals and votes, funding development, grants, and operational expenses without centralized control.

What is the primary risk of an 'algorithmic stablecoin' compared to a collateral-backed stablecoin?

Answer: Susceptibility to 'death spiral' collapse if confidence in the peg mechanism breaks down

Algorithmic stablecoins rely on market incentives and supply adjustments rather than hard collateral; a loss of confidence can trigger a reflexive collapse, as seen with TerraUST in May 2022.

What does 'KYC' stand for, and why is it required by cryptocurrency exchanges?

Answer: Know Your Customer; required under anti-money laundering regulations to verify user identity and prevent financial crimes

KYC (Know Your Customer) is a regulatory requirement under AML laws mandating exchanges verify user identities through ID documents to prevent money laundering, terrorism financing, and fraud.

What is 'gas' in the context of the Ethereum network?

Answer: A unit measuring computational effort required to execute operations, paid in ETH to compensate validators

Gas measures the computational resources consumed by Ethereum operations; users pay gas fees in ETH (calculated as gas units × gas price in gwei) to incentivize validators to include their transactions.